v. Commissioner [I.R.C. §55]
(§179 expensing election cannot
be changed after tax return filing)
Facts.The taxpayer, a self-employed welder, reported a business loss
for 1995 and was unable to benefit from his §179 election to expense a $4,100
asset. On audit, the IRS determined that due to unreported income the business
actually earned a profit. The IRS also recharacterized as depreciable assets three
items that taxpayer had expensed as materials and supplies. The IRS denied the
taxpayer’s request to revoke, amend, or modify his I.R.C. §179 election to expense
the three assets.
Issue.Whether IRS abused its discretion in refusing to grant consent
to taxpayer to revoke (modify or change) his election to expense depreciable business
assets under I.R.C. §179.
Analysis.An I.R.C.§179 election must be made on the taxpayer’s first
income tax return (whether or not the return is timely) or on an amended return
filed within the time prescribed by law (including extensions) for filing the
original return for such year [Genck v. Commissioner, 75 T.C.M. (CCH) 1984 (1998);
I.R.C. §179(c)(1)(B); and Treas. Reg. §1.179-5(a)]. An election made under I.R.C.
§179 and any specifications contained in such election may not be revoked (modified
or changed) without the IRS’s consent [I.R.C. §179(c)(2);King v. Commissioner,
60 T.C.M. (CCH) 1048 (1990)].
The taxpayer argued that his dilemma was caused by the IRS, since it was IRS’
determination after the taxpayer could make a timely election, that necessitated
taxpayer’s request for consent to revoke. The court noted that the taxpayer sought
to capitalize on his initial misclassification by reducing taxable income that
was caused by the unreported business receipts that the IRS discovered. Accordingly,
the court concluded it was taxpayer’s mischaracterization that precipitated the
need for change.
Holding.The Tax Court held that IRS did not abuse its discretion in
refusing to consent to taxpayer’s request to revoke (modify) the 1995 election
under I.R.C. §179.
[Patton v. Commissioner, 116 T.C. 206 (2001)]
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